What tests determine IR35 status?

The IR35 private sector reform, which will take effect in April 2020,  will require organisations that use off-payroll workers to make stringent checks to determine their employment status and where the responsibility for tax and national insurance contributions (NIC) lies.

But what factors do you need to look at when determining a contractor’s IR35 status?

We cover the top factors to consider below.

What tests determine IR35 status?

Substitution

Is there a substitution clause for times when the contractor is not available?

Since the contractor is not an employee, there must be a genuine right to supply a substitute when the contractor is not available. However, it is important that the choice, of whether to use a substitute, must rest solely with the professional contractor and not the client.

Direction and control

Is the contractor under the direct control of the employer? If so, they could be deemed inside IR35.

For IR35 to not be an issue:

• Contractors should be provided a clear specification of the tasks that they are expected to complete
• Both the written contract and working practices must demonstrate that your organisation has no influence over how the contractor performs her services
• Avoid placing a contractor under the supervision of a line manager
• Contractors shouldn’t receive any company benefits that are given to your permanent employees

Mutuality of obligation

Does the contract show evidence of non-mutuality?

For employees, there is an expectation of regular work until they are made redundant or decide to leave.

For contractors, this expectation should not exist. After a contract is complete, the contractor is not obliged to agree to another engagement, neither is the employer obliged to offer more work to the contractor.

Financial risk

Does the financial risk lie with the client or candidate?

If the client bears all of the risks, then this is an indicator that the contractor is, in fact, an employee.

One last thing to remember

Actual working practices over-ride contractual wording. A contract may state that something is the case, but if actual working practices contradict that, then the contract is void.